Ruth Kelly: I have already referred to the current review of the CFP, which is being led by the Commission. The current cost of the full package is €272 million, most of which could be funded by reprogramming existing structural commitments. We have not yet discussed the financial details, but I believe that the broad thrust of the package could be met by that fund.

Mr. Hopkins: Another matter that has been debated in the Committee before is aid to the developing world. It is well established that aid delivered through the Department for International Development is much more efficient and better targeted than it is through the European Union. Does the Minister think that there is a case for shifting more aid development money from European Union budgets to national budgets?

Column Number: 010

Ruth Kelly: I certainly share my hon. Friend's desire to make aid flows as responsive to the international situation as possible and ensure that they are administered as efficiently as possible. We are engaged in discussions about how to make the aid budget more efficient. Proposals are currently being developed, and we would like all member states to engage in the process of making its use as efficient as possible.

Mr. Luff: I shall return to my earlier line of questioning about the important third point in the Scrutiny Committee report. This is the last budget prepared under the current convention before we change to activity-based budgeting. Will the Minister reassure the Committee about the usefulness of this new approach and say whether, as the Scrutiny Committee asks in its report, the Government have any particular goals or concerns regarding the ABB approach?

Ruth Kelly: The hon. Gentleman rightly asks about the introduction of activity-based budgeting. This is the last time that the draft budget will be negotiated on the basis of the traditional budgeting method. The activity-based budgeting method has many similarities with the UK's own budgeting method, because it will allocate more money against agreed objectives and performance measures, which will make the budget process much less subjective and help to ensure that the appropriate resources are devoted to political priorities.

The introduction of activity-based budgeting will also allow further decentralisation of Commission decisions based on the broader reform principles of efficiency, accountability and transparency. There will be greater efficiency, as such budgeting can help to ensure that the minimum amount of resources is used for maximum impact. There will be more accountability because it will shift the focus from budget inputs and instead join the budgeting and reporting processes together. Transparency will increase because the new methods will provide a clearer and more relevant view of the EU funding needed to achieve each of the Community's objectives.

The Government strongly advocate activity-based budgeting because we think that overall it will provide a better link between EU spending and outcomes for EU citizens. We look forward to being able to debate these complex and interesting matters on a new basis.

Mr. Wilkinson: I am sure that the Minister will have noticed that expenditure on overseas aid and external actions constitutes about one tenth of the expenditure on agriculture. Does the Treasury think that the world financial system would be better served if there were no CAP? Is the Minister conscious of the deep frustration of primary producing countries such as Argentina, Uruguay, Paraguay, Chile and many others, whose products are artificially kept out of European markets and who find their products in competition with subsidised European agricultural produce on the world market? Would it not be infinitely better and economically sounder if there were an open market for agricultural produce in Europe? Would that not save money for the British

Column Number: 011

taxpayer and reduce the need for aid and compensation?

Ruth Kelly: For once, I think I may agree with the hon. Gentleman. The common agricultural policy must change. It was designed for an era in which, as a collection of member states, we had to tackle food shortages. That is no longer the case, and reform of the policy would provide us with the opportunity to seek greater market access for developing countries, which is especially relevant in the current context of the World Trade Organisation and the Doha development round.

Mr. Luff: The top line on page 47 of the charmingly-entitled volume 0 shows a budget increase of 6.9 per cent. in pensions for the European Commission. That contrasts with a modest increase in salaries of 2.2 per cent. I am aware that an explanation is offered at the bottom of page 47, but is the Minister satisfied that the Commission has the situation under control, and will the factors mentioned in that footnote, including an increase in the seniority of staff who are retiring, which pushes up the pensions costs, continue or tail off? What is the long-term trend for that apparently worrying statistic?

Ruth Kelly: The hon. Gentleman rightly points to the increase in pension costs. The reason is partly the net increase in the number of pensioners to whom the Commission has a commitment that it has to honour. I have already mentioned that we would like category 5, administrative expenditure, to be contained. The Commission is required to meet certain costs, such as salaries and pensions, but there is an allowance of 3.5 per cent. within the ceilings. The extra pressures that arise before enlargement could be accommodated within that extra amount.

Mr. Luff: May I press the Minister on a separate issue, but one with which she will be familiar? On page 88 of volume 0, there is mention of €959 million in subsidies for tobacco production. We see that expenditure in that sector has become

''relatively stable. Production eligible for premiums is subject to a strict quota system''

There is no hint that those sums will be reduced in future. Later in the same document, on pages 125 and 127, we find public health expenditure of €59.5 million in 2003, and on page 127 we can read about the community fund for research and information. Appropriations requested for 2003 amount to €40 million, of which €10 million is foreseen to improve public awareness of the harmful effects of tobacco consumption. There seems to be a slight contradiction in the policies of the European Union. I know that the Minister has spoken about the matter in the past, but I should like to hear what she has to say about it today.

Ruth Kelly: The UK would like to see a progressive disengagement with the EU tobacco regime. Unfortunately, we have to be realistic; there is strong pressure in the EU to maintain it. Eight member states grow tobacco and it is an important crop in many disadvantaged areas of the EU. We work by

Column Number: 012

co-operation and negotiation and will continue to press for the tobacco regime to be reviewed. I would point out to the hon. Gentleman that total appropriations for tobacco in the preliminary draft budget are €973 million, which is down €10 million from the 2002 budget. At least we are moving in the right direction.

Mr. Hopkins: I shall ask one last question, which I also raised this time last year. The same phrase occurs in this year's memorandum. In paragraph 23 of the explanatory memorandum, under the heading ''Policy Implications'', the Minister writes:

''The desire for rigour in the EC budget is shared by the majority of member states.''

I am surprised that not all member states want rigour in the budget. Will my hon. Friend tell us which member states are not interested in having a rigorous budget?

Ruth Kelly: I think that my hon. Friend knows that there are net contributors and net gainers from the EU budget. Surprisingly enough, the net contributors tend to push for greater rigour and discipline in budget setting, while those that predominantly gain from structural receipts and agricultural payments—they tend to be the Mediterranean countries—are less concerned about the overall budget limits. On the whole, there is a fairly simple divide, with the odd member state—I think that Finland is one—going from one category to the other in different years.

Mr. Walter: Paragraph 15 of the explanatory memorandum states that the reserves in category 6,

''which now comprise only the emergency aid reserve and the loan guarantee reserve, total €434 million''.

I am not an accountant, but does that mean that the European Union has total reserves of €434 million, or is that sum the total net addition to the reserves of the European Union? If it is the latter, what are the total reserves?

Ruth Kelly: I believe that the figure that the hon. Gentleman cites is the total reserve.

Mr. Wilkinson: I shall revert to the vexed question of the subsidy for tobacco growers, with which members of the Committee will have become exceedingly familiar over the years. As the United Kingdom supposedly espouses an ethical foreign policy, why cannot Her Majesty's Government, and particularly Her Majesty's Treasury, take a lead and withhold payment of that subsidy for morbidity in the European Union. Why should that area of policy be dealt with at Community level? If the producer countries wish to produce tobacco, let them subsidise it. Why should the British taxpayer have to do so? Could we not refuse to pay our subscription for that iniquitous expenditure?

Ruth Kelly: Under the previous Government we attempted a policy of disengagement and non-co-operation with other member states. It did not get us very far, and I am not about to recommend pursuing that policy.

Mr. Luff: I shall be returning to the Minister's provocative remarks in my speech. First, however, we are indebted to the European Scrutiny Committee for

Column Number: 013

quoting Budget Commissioner Schreyer. In paragraph 2.10, it is reported that she said that the Commission had left

I agree. It is prudent to have a contingency plan; indeed, we have such a plan for our own accounting procedures. Does the Minister feel that the precautionary margin is of the right size to cope with the possible risks? It may be a difficult question, but can she identify what risks the Commissioner may have had in mind?